August 22, 2009

Standing

Sky
Technologies sued SAP over an e-trade patent portfolio it had acquired through a
foreclosure and associated contractual conniptions. Because litigation lawyers
argue almost anything regardless of merit, SAP pitched lack of standing and
lost, so it appealed, desperately trying to break the chain of title.

In order to seek damages for infringement of a patent, a party must have
standing at the inception of the lawsuit. Arachnid, Inc. v. Merit Indus.,
Inc., 939 F.2d 1574, 1579 (Fed. Cir. 1991). A party that has been
granted all substantial rights under the patent, "regardless of how the
parties characterize the transaction that conveyed those rights," is
considered to have legal title, and therefore standing. Speedplay, Inc.
v. Bebop, Inc., 211 F.3d 1245, 1249-50 (Fed. Cir. 2000). Thus, it is the
"substance of what was granted" that determines the rights in the patent,
not the form. Id. at 1250; Vaupel Textilmaschinen KG v. Meccanica
Europa Italia S.P.A., 944 F.2d 870, 873-76 (Fed. Cir. 1991).

We have previously held that patent ownership is determined by state, not
federal law. Akazawa, 520 F.3d at 1357 (citing Jim Arnold Corp. v.
Hydrotech Sys., Inc., 109 F.3d 1567, 1572 (Fed. Cir. 1997) ("[T]he
question of who owns the patent rights and on what terms typically is a
question exclusively for state courts.")). However, "the question of whether
a patent assignment clause creates an automatic assignment or merely an
obligation to assign is intimately bound up with the question of standing in
patent cases," and therefore we have "treated it as a matter of federal
law." DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284,
1290 (Fed. Cir. 2008). Usually, federal law is used to determine the
validity and terms of an assignment, but state law controls any transfer of
patent ownership by operation of law not deemed an assignment.

The Federal Patent Act requires that all assignments of patent interest
be in writing. 35 U.S.C. § 261 (2006). This requirement dates back to the
1881 Supreme Court decision in Ager v. Murray, which held that a
debtor's interest in a patent that would be used to satisfy a judgment
against him was property, "assignable by him, and . . . [could not] be taken
on execution at law." 105 U.S. 126, 131-32 (1881). The Court held that the
patentee was required to execute a writing to assign title, or a trustee
would be appointed to execute an assignment, "if the patentee should not
himself execute one as directed." Id. at 126, 132. This decision was
based on the idea that a creditor cannot reach incorporeal property, such as
a patent, due to its intangible nature; the transfer (either voluntary or
involuntary) to a purchaser must be done by written assignment "in order to
vest [the purchaser] with a complete title to the property." Id. at
130 (citing Stephens v. Cady, 55 U.S. (14 How.) 528, 531 (1852)).

Even though a transfer of patent ownership, if through an assignment,
must be in writing, this court has held, "[T]here is nothing that limits
assignment as the only means for transferring patent ownership. . . . [O]wnership
of a patent may be changed by operation of law." Akazawa, 520 F.3d at
1356. In Akazawa, the defendant challenged the plaintiff's standing
to sue for infringement based on an alleged defect in the assignor's claim
of ownership in the patent. Id. at 1355. Akazawa, the inventor of a patent,
died intestate, after which his wife and daughters agreed that all of
Akazawa's rights would be transferred to his wife, who then transferred her
rights to the plaintiff. Id. at 1355. The district court held that the
plaintiff lacked standing to enforce the patent because no writing had been
issued from the inventor to his wife granting her all of his rights to the
patent. Id. We reversed the district court's decision and held that
passage of title through intestacy is not an assignment, and therefore did
not require a writing. Id. at 1358. Further, we stated that if the
controlling state or foreign intestacy law passed title of the patent to the
wife and daughters upon the inventor's death, then all subsequent transfers
were valid. Id.

We find that Akazawa controls in the instant case, and that the
district court's reliance on its reasoning was appropriate because transfer
of patent ownership by operation of law is permissible without a writing.
Akazawa says nothing about permitting assignments without a writing;
rather, this court made it clear that if assignment is the method of
transfer of patent ownership, it must be done in writing, pursuant to § 261.
See
Akazawa, 520 F.3d at 1356. However, assignment is not the only method by
which to transfer patent ownership. As noted below, foreclosure under state
law may transfer patent ownership. Here, XACP's foreclosure on its security
interest was in accordance with Massachusetts law; therefore, Sky received
full title and ownership of the patents from XACP providing it with standing
in the underlying case.

SAP misapplied statute twice, first with regard to 35 U.S.C. § 154.

Despite this clear authority, Appellants make much of 35 U.S.C. § 154,
which controls the content and term of a patent. Section 154(a)(1) states,
"Every patent shall contain a short title of the invention and a grant to
the patentee, his heirs or assigns, of the right to exclude others from
making, using, offering for sale, or selling the invention . . . ." 35 U.S.C.
§ 154(a)(1) (2006). Accordingly, Appellants contend that patents can only be
owned by three categories of individuals--the patentee, his heirs, or his
assigns. Appellants assert the holding in Akazawa was correct, but is
not controlling because the class of persons receiving ownership through
operation of law in Akazawa were heirs--a class within § 154(a)(1)--but
no heirs or assigns exist in the present case. We find this argument
unpersuasive. Section 154 does not restrict patent ownership to these three
classes of individuals, and moreover, this language fails to specifically
address transfers of patent ownership.

SAP then tried to foist 35 U.S.C. § 261 as damning, arguing that "if
Massachusetts law is found to allow transfers of patent ownership without a
writing, then federal preemption must occur pursuant to 35 U.S.C. § 261."
Nonsense.

Section 261 speaks only to assignments of patents; there exists no
federal statute requiring a writing for all conveyances of patent ownership.
Therefore, no federal law preempts the use of the Massachusetts UCC
foreclosure provisions to transfer patent ownership by operation of law.
Consequently, Appellants' preemption argument lacks merit.

SAP's arguments were all meritless.

By following proper foreclosure procedures, XACP became the owner of the
patents-in-suit. Therefore, XACP's assignment to Sky of all of its rights,
title, and interest in the patents-in-suit made Sky the owner of the same,
and the proper party to bring the underlying infringement action.

"I love it. No qualms about taking a person's rights from them "by law". F you sir."

You're an ignoramus. If the inventor's employment contract requires them to assign his/her invention, or if the inventor's employer has a well recognized shop right, then the inventor never had any rights to take. The invention belonged to the employer the moment it was created.

Posted by: don't bother at September 1, 2009 5:27 AM

"The invention belonged to the employer the moment it was created."

Due to the some lawls which I also say "" to. The lawls dragging this patent system and lawyers like those above into the ground are numerous and plentiful.

Posted by: 6000 at September 1, 2009 9:12 AM

strike the first "the".

Posted by: 6000 at September 1, 2009 9:12 AM

To be clear I am not for unjustly taking anybody's rights. There are times when an individual (does not have to be a company) hires someone to assist them with their concept of an invention. They contract up front that they are hiring the person to invent. Part of the compensation they paying is for ownership of the patent and the inventor or co-inventor agrees by written contract to assign the patent. In order to transfer title a separate written assignment is necessary. However, I have had experiences when for whatever reason the inventor or co-inventor then refuses to sign the assignment after contractually agreeing to do so and accepting payment. That is the situation I was referring to that this could be helpful. So in this scenario in my opinion the inventor is unjustly causing problems for the owner who paid for ownership.

Hawk, thanks for your quote from the Sky Tech opinion. Please compare the actual text of Ager v Murray, published at the URL linked to my sig. Note that the Fed. Cir. has once again lifted a bare phrase, from _dicta_ out of context from the remainder of a Supreme Court opinion, so as to misrepresent the gist of the opinion.

patent: an interest seizable and transferable by actions at equity, without recorded assignment (Ager v. Murray, 105 US 126 (1881)).